Do you think CSRD stand for 'Comprehensive Sustainability and Risk Directive' or 'Corporate Sustainability Reporting Directive'?
CSRD is now truly kicking off. Knowing what the abbreviation stands for is one thing, but it’s high time to get started with it, as it will likely apply to your company too. Don’t worry. At Rainbow Collection, we embrace CSRD because we believe it will encourage even more companies to take sustainability seriously. You just need to know where to begin. And that’s exactly why we wrote this blog.
The Corporate Sustainability Reporting Directive (CSRD) is the European directive on sustainability reporting that will become mandatory for a large group of companies from 2024/2025. This regulation ensures that companies report consistently on their:
Additionally, CSRD requires companies to have this information verified by an external auditor
CSRD is the successor to the Non-Financial Reporting Directive (NFRD). The NFRD only applied to publicly listed companies. Under the NFRD, companies had a lot of freedom in how and what they communicated, making it difficult to compare companies on sustainability matters. CSRD brings consistency, which is valuable for all stakeholders, from investors to customers.
‘Double materiality’ is a key aspect of the CSRD. It means that companies must report not only on the financial impact of their activities on themselves but also on their broader impact on society and the environment. In other words, companies need to consider both external (social and environmental) and internal (financial) aspects of their activities when reporting on their performance and risks. This includes topics such as biodiversity loss and human rights violations. Companies must also report on how their operations could be affected by climate change. External factors like resource scarcity, extreme weather, and transition risks must be included, as well as potential reputational risks, for example, if a company lacks inclusive policies.
First, the large companies will be affected, but eventually, smaller enterprises will also have to comply.
CSRD applies to large publicly listed companies or public interest entities, such as banks or insurance companies. They will report on 2024.
CSRD will also apply to organizations that meet 2 out of the following 3 criteria. They will report on 2025, so they need to have their CSRD system in place by 2024:
Publicly listed small and medium-sized enterprises (SMEs) will also fall under the CSRD requirements. They will report on 2026 and need to have their CSRD system in place by 2025.
All EU-based companies with more than 10 employees and non-EU companies with revenue exceeding €150 million must comply with CSRD guidelines. They will report on 2027 and need to have their CSRD system in place by 2026.
Even your business will likely face more sustainability-related questions from customers or other partners in the coming years. Measuring impact is always a good idea.
Create a list of stakeholders relevant to your company. What does your value chain look like? Who will be affected by your environmental impact? And vice versa? Consider employees, consumers, suppliers/brands, partners, investors, and/or (local) social organizations.
Tip: Involve your accountant early on. Agree on the process and reporting together in advance.
Create an initial long list of topics. Remove any themes that are clearly not material. All other topics should be included in the double materiality analysis.
Tip: The guidelines for how companies should report according to the CSRD are laid out in various chapters of the European Sustainability Reporting Standard (ESRS). You can also use the SASB standard.
Determine the importance of each impact topic through research, surveys, interviews, or workshops with internal and external stakeholders. This is also known as the inside-out perspective.
Example: How does your company affect the climate?
Identify the risks and opportunities of each impact topic for your company through research, surveys, interviews, or workshops with internal and external stakeholders. This is known as the outside-in perspective.
Example: How could climate change affect your organization?
Combine the inside-out and outside-in perspectives into a matrix. This will show which topics are “material” for your company (those that score high in the matrix) and need to be reported on according to CSRD guidelines.
Based on your material topics, decide which standards you need to report on.
Translate the results of the analysis into your sustainability strategy. It’s important to include both short- and long-term goals in this strategy, how you plan to achieve these goals, and how you will measure the impact and report on it.
Tip: Have your accountant review this to ensure nothing is missed. Besides, make sure you thoroughly inform your employees and external stakeholders so they know what is expected from them and why. This is the only way to make progress.
Start measuring. Your entire organization should look for the right systems to gather accurate data and information. Alternatively, you can develop these systems yourself.
Good measurement systems are essential as you’ll need to continue measuring for years to come. They help you better understand your company, providing valuable input for your double materiality analysis, goals, action plan, and strategy.
Your final sustainability report should explain the points from your double materiality analysis:
The sustainability report becomes an essential part of your annual report. Additionally, under CSRD, you must publish your sustainability strategy and report on your website. All data must also be reported to the EU in a format readable by both people and computers (the European Single Electronic Format (ESEF/XHTML)).
Don’t forget that, according to CSRD, your reports must be audited by an external accountant. The guidelines for how companies should report according to CSRD are detailed in various chapters of the European Sustainability Reporting Standard (ESRS). Read more here.
Bring all relevant teams together—it’s a chance to drive sustainability efforts collectively. Collaborate across the supply chain and with partners to learn and improve together. Identify who you want at the table, even the “unusual suspects” like Greenpeace or local NGOs. Broadening your perspective is always good.
Make sure your board and management understand the importance of CSRD beyond just reporting. Schedule a session to highlight the value—strategic opportunities, long-term sustainability, avoiding future crises (e.g., resource shortages), and understanding dependencies like biodiversity.
Use visuals—draw out your supply chain, use icons and emojis. A picture says a thousand words. You don’t have to be Vincent van Gogh. Just keep it simple or look for images online.
Check out the material topics your competitors focus on. It’s a great way to gauge industry priorities.
Use surveys to understand what your team and customers care about. Get ahead and align your efforts with their expectations.
It offers a broader view of your organisation’s impact and helps you align with planetary boundaries. It’s a more holistic approach to sustainability.
CSRD is new for everyone; mistakes will happen. Better to begin and adjust along the way than to wait for the perfect moment. Remember, even the experts are still figuring things out.
Aim to have things ready by October. This way, you can work with your KPI managers to develop a plan for measuring and providing evidence
When your report is ready, take a moment to celebrate. You deserve it.
Want to make it even easier for yourself? Our ‘CSRD Made Easy’ package will help make CSRD as practical and valuable as possible for your business.
